Pacific Investment Management Co. Chief Executive Officer Douglas Hodge said investors have had enough time to prepare themselves for a possible Greek default.
“Let’s recognize we’ve had three years to prepare,” Hodge, whose firm oversees about $1.59 trillion in assets, said at a conference in London on Thursday. “This has been a soap opera. Private capital has had ample opportunity to position itself for Greece defaulting.”
European stocks fell for a second day as the region’s finance chiefs gathered in Luxembourg to work on an agreement for as much as 7.2 billion euros ($8 billion) in bailout funds for Greece. German Finance Minister Wolfgang Schaeuble has said he’s drafting contingency plans for a breakdown in talks, signaling the country is preparing for a possible default.
Hodge said that while he hopes that Greece will still be part of the currency bloc in a year’s time, he has “every confidence” that the region will be fine without the country.
“There will probably be some readjustment because some people, I’m sure, have taken positions in the hope that Greece will stay in the euro zone and they’ll be disappointed but again, this is where the capital markets will adjust,” he said.
German Chancellor Angela Merkel said a deal with Greece is still possible provided the government follows through on the economic reform pledges made to creditors. While the economic damage for the country “is going to be extreme,” the market “is fairly sanguine” about a Greek exit, according to Hodge.
“Europe is large, it is stable, it has a well functioning financial system,” he said. “It has economies that are getting stronger by the day.”
Pimco, based in Newport Beach, California, posted 68.3 billion euros of net outflows in the first quarter, in part hurt by the departure of Bill Gross last year. Hodge said a global shift in money from institutions to individual directed savings has changed the way the firm manages its liquidity.
“Volatility is on the rise,” he said. “In a world categorized by low beta returns, investors can’t ride this wave that they have done for the last six years. We are now in conditions where ultimately active managers should outperform.”